Carter v. Shop Rite Foods, Inc. (503 F. Supp. 680, 1980)

MEMORANDUM ORDER

PATRICK E. HIGGINBOTHAM, District Judge.

The special master has filed a report recommending back pay awards, including interest to July 1, 1980, totaling $208,148. The method by which these awards were computed is complex, and will be discussed in some detail in the following section.

I. The Master’s Report.

The master first computed a quantity designated the “weekly differential” for each year for the positions of assistant manager, manager, and produce manager. This number consisted of the difference between the median salary for males in the respective managerial positions and an estimate of the average salary earned by the claimants. The average claimant salary was used rather than the actual salary for each claimant because the master believed that higher-paid claimants should not be penalized for their presumably greater productivity.

The weekly differential was then multiplied by the number of weeks each claimant would have served in a managerial position absent discrimination. The latter figure was computed by assuming that each claimant would have been promoted after the median length of time served by male employees before promotion. Where claimants aspired to both the assistant manager/manager positions and the produce manager position, the promotion track resulting in the larger back pay award was used. The promotion ladder was assumed to begin on July 2, 1965, when Title VII became effective, rather than two years before filing of the EEOC charge, as urged by the defendant. This resulted in treatment of most claimants as incumbents in managerial positions from the beginning of the back-pay period.

The master did not make any allowance for the possibility that one or more claimants would absent discrimination have reached supervisory rank. While he found it likely that at least one claimant would have been so promoted, he found it impossible, or at least extremely difficult, to determine: (1) which claimants) would have been promoted; (2) to which position(s) they would have been promoted; and (3) the median time before promotion to supervisory rank. He also noted that, with one exception, all male supervisors had (unlike claimants) had managerial experience before coming to Shop Rite.

The result of applying hypothetical promotion times to the weekly differential was designated the “Vanilla Back Pay Award.” The respective awards, which total $200,605, are shown in column 1 of the appendix.

The master determined that bonuses for employees in the assistant manager and manager positions were isolated occurrences, and recommended that no provision be made for bonuses in such positions. He recommended inclusion of a bonus ranging from $4 to $10 weekly in the produce manager’s salary computations.

The master recommended use of a 6% annual interest rate, compounded weekly, for an effective annual rate of 6.18%. He considered and rejected inclusion of an additional amount as an inflation factor, on the ground that Title VII claimants should not fare better in this regard than other judgment creditors. The Vanilla Awards adjusted for interest to date are shown in column 4 of the appendix.

The master analyzed a variety of tax effects on the back pay awards, and concluded that no adjustment should be made. He determined that the detriment to the claimants due to lump-sum taxation of the awards in the year of receipt was roughly counterbalanced by the award of compound interest on the amounts which in reality would have been paid to the tax collector in the year in which earned. The master also concluded that the effects of FICA and unemployment taxes should be ignored.

The most troublesome problem facing the master was the treatment to be given the fact that male managerial employees were typically terminated (whether voluntarily or involuntarily is not known) after a short tenure in managerial positions. Plaintiffs urged that this fact be ignored altogether, while defendant urged that each claimant’s hypothetical tenure be cut short after the median male tenure had elapsed, even if this meant that some claimants would have been hypothetically terminated before the back-pay period began.

The master employed two basic approaches to take this factor into account. First, he computed the rough odds of a particular claimant being terminated after varying times in a given position. These odds were then factored into the week-by-week computations of the Vanilla Awards: the weekly differential was multiplied by the estimated probability that the claimant would have remained in the position during the week in question. To prevent some claimants’ awards from being sharply reduced even at the beginning of the period, the master did not apply a probability factor to the weekly differential until the median number of weeks, shown in n.3, had elapsed from the beginning of the period. The results of these calculations are shown in column 2 of the appendix, and the awards so computed (with interest to July 1, 1980) total $236,073.69.

In the master’s second approach, which he ultimately adopted, the aggregate Vanilla Award was first reduced by 40%, then multiplied by an interest factor. This figure ($173,870) was then used as an aggregate award for 11 “major” claimants. Each claimant’s share of this award was determined by multiplying the number of weeks “worked” as manager, plus % of the weeks worked as assistant manager and Vs of the weeks worked as clerk, by the claimant’s average weekly wage as clerk, and dividing by the total of this quantity for all claimants.

In addition to the recommended awards computed by this method for 11 claimants, seven other awards were recommended. Claimants Brown and Lamb, hypothetically promoted to produce manager, were given the so-called Appendix H award, including bonus. Claimants Simpson, Spencer, and Williams were given amounts which were stipulated or which could be computed from stipulated amounts. Claimant Stricklin was awarded the difference between the wages she received as meat wrapper and the wages she would have received as apprentice meat cutter, with interest. Claimant McDowell was given the difference between what she earned as a part-time clerk and what she would have earned as a full-time clerk. These “special case” awards bring the recommended award to $208,148, the Vanilla Award to $219,300 ($330,255 with interest), and the Appendix H award to $254,769.

II. The Parties’ Objections.

Plaintiffs have filed extensive objections to the master’s report. Their objections may be summarized as follows:

(1) The reduction for probability of termination in the Appendix H award and the recommended award was improper.

(2) The master should have included an inflation factor.

(3) The use of average claimants’ salaries rather than actual claimants’ salaries in computing the Vanilla and Appendix H awards was inappropriate.

(4) The master should have included bonuses for assistant managers and managers.

(5) The failure to award a differential for nonpromotion to supervisor was erroneous.

(6) Claimant McDowell should not have been limited to the higher of the differential between part-time clerk and full-time clerk and between full-time clerk and produce manager.

(7) Plaintiffs urge adoption of the master’s recommendations regarding tax effects.

Defendant has responded to the master’s report by letter, also presenting objections:

(1) The claimants should not have been automatically promoted into the highest position (except for supervisor) they could statistically achieve.

(2) The master only partially took into account the fact the male managers were soon terminated.

(3) The assumption that those seeking both produce manager and assistant manager/manager promotion tracks should receive the higher of the corresponding awards is unfair.

(4) The award to Claimant Strickland should have been based on the one actual vacancy and not on a hypothetical vacancy.

III. The Termination Factor.

The approach finally recommended by the master adjusts for the probability of termination by reducing the aggregate Vanilla Award by 40%. This figure was obtained through a complicated, statistical estimation process, and represents the master’s best estimate of the effect of the termination probability given an underlying assumption (favorable to claimants) that the termination probability begins only at the beginning of the back pay period. This reduction is based on the assumption that female managers as a group would not have performed significantly better than male managers as a group.

Plaintiffs, citing Franks v. Bowman Transportation Co., 424 U.S. 747, 773 n.32, 96 S.Ct. 1251, 1268 n.32, 47 L.Ed.2d 444 (1976), argue that uncertainty about the claimants’ work performance following their hypothetical promotion must be resolved against the defendant, whose unlawful conduct created the uncertainty. They argue further that the median male tenure figures, even after adjustments by the master, are unrepresentative of the true tenure the female managerial employees would have achieved, because they include male managers who were managing at the end of the back pay period and whose true tenure is thus underestimated, and because due to discrimination the male managers are presumably as a whole less qualified than their female counterparts. Defendant argues, on the other hand, that absent evidence showing a longer tenure would have been achieved by a particular claimant or claimants, each claimant must be hypothetically terminated after the median male tenure, and that consideration must be given to the possibility that a female assistant manager would have been terminated rather than promoted to manager.

The court agrees with plaintiffs that no reduction should be made for termination probabilities, but for a reason slightly different from those articulated by them. It is true that some male employees may have been terminated, voluntarily or involuntarily, due to their unsuitability as supermarket managers or assistant managers. These employees may well have been paid less than their Shop Rite managerial counterparts at the jobs they assumed after leaving Shop Rite. Indeed, they may have been paid less than the average claimant’s salary, or may have been unable to obtain employment at all. On the other hand, terminated employees may have been fully competent managers, and may have obtained managerial positions elsewhere at salaries equal to or greater than their Shop Rite salaries. In such cases, Shop Rite’s discrimination would have prevented claimants from obtaining the skills and experience which would have enabled them to obtain lucrative employment elsewhere.

A pair of diagrams may be helpful:

Figure 1 shows the award urged by defendant (after appropriate adjustment for the probability of failure to reach the manager level): it is assumed that the claimant would have been terminated after the median male tenure and that she would have earned a clerk’s salary at her new job, i. e., that she would have acquired no transferable skills or experience as a Shop Rite manager. Figure 2 shows the award urged by plaintiffs: it is assumed that the claimant would have remained at Shop Rite as manager or that she would have earned an equal amount elsewhere. The crosshatched portion of the figure may be regarded as the return on transferable skills or experience following a hypothetical termination.

Of the two sets of assumptions underlying these models, the latter is the more reasonable. Even if large numbers of male employees were involuntarily terminated for poor performance (a fact not shown by the evidence), there is no reason to believe that those employees were forced to accept no more than a clerk’s salary at their new jobs. While some terminated employees may have had to accept lower-paying jobs due to economic conditions or to adverse inferences drawn by their new employers from the fact of their termination, others may have voluntarily left Shop Rite in order to assume higher-paying jobs elsewhere, perhaps even at the supervisory level. In the absence of evidence showing that hypothetically terminated employees would have earned a lower salary, the court must resolve doubts in favor of the claimants by awarding them a manager’s salary notwithstanding the possibility of termination.

This approach is in accord with the widely-recognized Fifth Circuit rule that uncertainty in determining what an employee would have earned but for discrimination should be resolved against the employer. United States v. United States Steel Corp., 520 F.2d 1043, 1050 (5th Cir. 1975), cert. denied, 429 U.S. 817, 97 S.Ct. 61, 50 L.Ed.2d 77 (1976); Pettway v. American Cast Iron Pipe Co., 494 F.2d 211, 260-61 (5th Cir. 1974). As the court noted in United States v. United States Steel Corp., supra, “once a court has determined that a defendant’s inequitable conduct caused some damages to the class, or to a representative sample of its members, then the burden falls upon the wrongdoer to explain away or disprove the damages which each claimant’s evidence arguably supports.” 520 F.2d at 1050. The computation of back pay under these principles is within the court’s discretion, and there is no single correct formula for computing back pay. United States v. Allegheny-Ludlum Industries, Inc., 517 F.2d 826, 852 n.29 (5th Cir. 1975) , cert. denied, 425 U.S. 944, 96 S.Ct. 1684, 48 L.Ed.2d 187 (1976).

IV. Inflation.

New courts have squarely faced the question of whether a Title VII back pay award should include, explicitly or implicitly, an adjustment for inflation occurring between the time of the discrimination and the time of the back pay award. Such a factor has been explicitly included by one district court, see Lewis v. Philip Morris, Inc., 13 Empl.Prac.Dec. ¶ 11,350, at 6169 (E.D.Va.1976) , but that decision appears to stand alone. Other courts have denied inflationary adjustments outright, see Kinsey v. Legg Mason Wood Walker, Inc., 16 Empl. Prac.Dec. ¶ 8,168, at 4825 (D.D.C.1978) (recovery of interest and inflation factor would be double recovery), or have adjusted for inflation through an increase in the interest rate applied to the award, see EEOC v. Pacific Press Publishing Association, 482 F.Supp. 1291, 1319-20 (N.D.Cal.1979) (adjusted prime rate); Patterson v. Youngstown Sheet and Tube Co., 475 F.Supp. 344, 355 (N.D.Ind.1979) (8%). Cf. Chapman v. Pacific Telephone and Telegraph Co., 456 F.Supp. 77, 80 (N.D.Cal.1978) (inflation factor denied where salaries included cost-of-living adjustments). See also English v. Seaboard Coast Line R. R. Co., 12 Empl.Prac.Dec. ¶ 11,237, at 5730 (S.D.Ga.1975) (pretermitting question).

While denial of an inflation factor in employment discrimination actions against the federal government, see, e. g., Blake v. Hoston, 22 Empl.Prac.Dec. ¶ 30,603, at 14,-235 (D.C.Cir.1980); Moysey v. Andrus, 22 Empl.Prac.Dec. ¶ 30,834, at 15,328 (D.D.C.1980), rests in part on special considerations not present in a case involving a private employer, the reasoning employed in a recent Fifth Circuit decision under the Back Pay Act, 5 U.S.C. § 5596, may be instructive. In Payne v. Panama Canal Co., 607 F.2d 155 (5th Cir. 1979), the district court ordered that back pay calculations include an inflation adjustment in accordance with the Consumer Price Indices. The court reasoned that the statutory language, specifying an award of “an amount equal” to the pay differential, must be read as authorizing an inflation factor, since a 1964 dollar was not “equal to” a 1972 dollar. Payne v. Panama Canal Co., 428 F.Supp. 997, 1001 (D.C.Z.1977). The Fifth Circuit reversed on this point, finding an inflation award inappropriate absent an express authorization for such an award in the statute or regulations. 607 F.2d at 165. Significantly, the court stated that “[t]he law does not recognize the impact on judgments of inflation occurring prior to the judgment,” citing a patent infringement case. Id.

The master’s decision that Title VII claimants should not receive more favorable treatment vis a vis an inflation factor than other judgment creditors is in line with the Fifth Circuit’s reasoning in Payne. While a court in a Title VII case undoubtedly retains the power to make appropriate adjustments in the interest rate to achieve an equitable balance of factors including inflation, an explicit adjustment for inflation could create additional administrative difficulties in the computation of back pay awards, EEOC v. Pacific Press Publishing Association, supra, at 1319, and would single out Title VII claimants for treatment not accorded other creditors.

As various courts and economists have recognized, an interest award includes two elements: a recovery for the “time use of money,” i. e., compensation for deprivation of the use of funds without regard to inflation, sometimes referred to as a “true” interest rate; and a factor to compensate, fully or partially, for the diminution over time in the purchasing power of the funds, i. e., an inflation factor. Expert testimony before the master establishes the “true” interest rate during the relevant period at 2-4%. Thus the 6.18% interest rate used by the master (which itself gives the claimants a slight advantage over other creditors, who would not ordinarily be entitled to compounding) includes an inflation component of 2.18 — 4.18%.

From 1972 through 1978, annual percentage increases in the national Consumer Price Index for Urban Wage Earners and Clerical Workers ranged from 5.77 to 10.97%. See 4 Lab.L.Rep. ¶ 7778, at 12,931. While the inflation component of the interest award does not keep pace with these figures, the award does correspond roughly to the actual rate of return claimants could have received. The factual basis for the master’s report reveals that during the relevant period, savings yields were 4% on U.S. savings bonds, 5Vi to 5V2% on savings accounts 6 to 6V2% at credit unions. The simple fact is that the claimants, being small investors unable to invest their money for long periods of time, could not have kept pace with inflation in any event. Cf. H. K. Porter Co. v. Goodyear Tire and Rubber Co., 536 F.2d 1115, 1124 (6th Cir. 1976) (this factor is one justification for denying an inflation adjustment in patent infringement case). This being the case, the master’s proposed 6.18% figure represents a reasonable interest rate to be applied to the awards, and any further adjustment for inflation is unjustified. That the standard 6% legal rate of interest is outstripped by inflation is perhaps unfortunate; if so, however, it is a misfortune which ought to be shared equally by all creditors unless and until the main body of the law is altered to allow inflation adjustments.

V. “Average” Claimant Salaries.

Plaintiffs next complain of the master’s use of an “average claimant salary” for comparison to managerial salaries, rather than the actual salary earned by each claimant. They urge that this technique reduces the aggregate award by $22,023, and hence that the problem is by no means inconsequential. The figures used by the master as rough “average” claimant salaries indeed differ considerably from the averages of the salaries of the 13 claimants for whom Vanilla Awards were calculated. The master’s figures are an average of $5.71/week higher than actual average claimant salaries, rendering the weekly differential a corresponding amount too low (on the average), if average claimant salary is to be used. On the other hand, the master’s figures more nearly correspond to the median claimant’s salaries, being on the average 64